So much for one-time spending
Last November, talking about how to spend what was then an estimated $9.3 billion surplus, Gov. Tim Walz said he wanted to focus heavily on one-time spending, citing the grim economic outlook.
“I think we’re going to have to focus heavily on one-time” spending, he said. “I think there’s still every realization that the economy will slow some over the next couple quarters, and we need to be thoughtful about that.
But a lot has changed since then. For one, instead of the initial $9.3 billion, the Minnesota Management and Budget announced in December that Minnesota’s surplus has grown to $17.6 billion.
Governor Walz’s stance has also changed. In his recently proposed budget, Walz wants to spend a lot of money to make Minnesota one of the best states for kids.
The specific details of the budget are not out yet, but from the look of things, a lot of this spending on children and families is on ongoing programs that will have to be sustained in the long term. Refundable childcare tax credits, for example, which would cost over half a billion dollars a year are permanent. The same is true for any funding for free Pre-K or other early childcare programs.
Similarly, increasing the general education funding formula will add $2 billion to K-12 spending, which will likely be baked into the baseline for future K-12 spending. And while Walz has shown some interest in tax rebates — in the form of checks — given his proposed $12 billion budget, those will likely take up a smaller portion of the surplus, assuming fellow Democrats in the legislature come around to the idea of tax rebates in the first place.
Why this should be concerning for Minnesotans
Certainly, the economic outlook has slightly improved since the November forecast, but the risk of a recession still looms. Additionally, when it comes to the economy, nothing is ever certain. So, even if we were to escape a recession now, chances are there is going to be a downturn somewhere down the road. And when that happens, all of this spending will have to be made up somehow — likely through tax hikes. Looking at history, it is unlikely that any of these programs will be dropped in the event of a deficit.
Moreover, if such a big portion of the spending is focused on spending, it leaves less room to cut taxes. But as American Experiment has emphasized, Minnesota has some of the highest taxes in the country. At a time when almost half of the states — and counting — are cutting their taxes, we are becoming less competitive by the day if we do not significantly cut taxes.
Unlike spending, tax cuts are expansionary. They stimulate investment and productive activity thereby raising income. Government spending, however, can do the opposite by crowding out private investment.
Minnesotans should be concerned about Walz’s plan to add billions more in what’s likely going to be long-term spending to Minnesota’s already bloated budget.